Archive for March 26th, 2012

How the Keynesian-consensus turned into Keynesian-Dissensus in great recession

March 26, 2012

Henry Farrell and John Quiggin in this interesting paper look at this change of economic thought in this crisis.

They say that just on the breakout of the crisis economists and policymakers agreed near universally on the need for fiscal stimulus and adopt Keynesian policies. However, as crisis eased a bit we saw a great divergence with some economies choosing to adopt fiscal austerity and anti-Keynesian policies. What led to this sudden shift given the fact that economic conditions were still very bad.

The duo say the reason is shift of economic thought. On the eve of the crisis the Keynesian economists came to centre and pushed for stimulus. The anti-Keynesians either kept quiet or some even became more supportive of stimulus (like Martin Feldstein). As crisis eased, the anti-Keynesians again rose mainly German economists and ECB who strongly argued for the need to fiscal austerity.


How Germans (Hitler) influenced Norway Central Bank Monetary Policy in World War II….

March 26, 2012

An amazing paper on the topic by Harald Espeli of Norges Bank. Most papers on war economics focus on the rising government deficits etc. This one shows how the more powerful enemy can lead to problems for central banks and monetary policy as well.

In nut shell, Norges Bank was a fairly independent CB till WW-II. In WW-II Germans took over Norway and its economy as well. They started circulating their own currency apart from Norwegian Krone leading to a much higher money supply and inflation. What was even more damaging was the loss of central bank independence which became a long term problem. It was only in 1990s after a huge crisis in Norway did the central bank get back its lost independence.

The Norwegian central bank seems to have been more accommodating to German wishes and demands than the central banks in other German occupied countries in Western Europe. This led to a permanent damage to the reputation of the central bank.


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